Brewin's £32m hit exposes wealth firms' big tech headache

Brewin Dolphin’s decision to take a £32 million hit and ditch a software upgrade underlines how wealth firms are grappling with technology in today's brave new world.

A lot of the older firms have been forced to upgrade their systems to cater for increasingly technology savvy clients and meet growing regulatory demands.

And with the FCA holding the ‘sword of Damocles’ over wealth firms on suitability, getting the right technology systems in place is critical.

Last month’s £18 million fine for Invesco Perpetual underlined how poor tech systems can prove costly. As it dished out the fine, the financial watchdog criticised the asset manager for having manual record keeping systems, which in turn created a risk daily valuation of some funds would be inaccurate.

Anthony Rawlins, a senior manager in the Financial Services Industry Group, said the Invesco Perpetual fine underlines how the FCA’s interpretations of ‘treating customers fairly’ has changed.

‘Their focus on best execution, systems and controls shows there can be no room for management complacency. Even newly developed systems may well be in breach of FCA rules, allowing companies to inadvertently fall foul of the new interpretations without knowing they are at risk,’ Rawlins said.

‘The lesson to be learned here must be that executives should be constantly asking, on all activity, ‘Will the outcome have an adverse impact on our risks?’ and ‘What will the impact be on our customers?’

At such a cost, Brewin's decision to abort the new Figaro software across its wealth business would not have been taken lightly.

In a statement to the stockmarket, the group said it would instead look to upgrade its existing internal systems and stressed its IT strategy remains important.

‘The board believes the decision to cease the roll out of Figaro is in the best commercial interests of the group,’ Brewins explained. ‘Moreover, it remains confident that the 2016 operating margin target will be achieved through on-going business improvements,’ the company said in a statement.’

If Brewin can get its tech right the potential reward is significant.

A survey from SEI highlighted how improving operations remains a priority for investment managers as regulators continue to demand deeper levels of transparency.

It also highlighted how operational capabilities are becoming a key competitive advantage, with 77% of the investment managers surveyed believing there is a ‘somewhat strong’ or ‘very strong’ link between their operational capabilities and their business' competitiveness.

‘Having strong operational capabilities has been moving up on the priority list for investment managers for years now as they see that superior operations can actually differentiate their firms in the marketplace,’ SEI’s Ross Ellis said.

‘In today’s climate, it’s critical for investment managers to find new ways to enhance and streamline operations in order to support investor demands.’

As Brewin goes back to the drawing board, it will hope this time it comes up with a tech solution to exploit this opportunity.

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